Market Snapshot December 2, 2020



Stocks are basically flat but bonds are again under pressure. Mortgage bonds have been and are outperforming Treasuries, however this will not last. The 10-yr yield is now at .96% and threatening to run to 1%. The discouraging part for today is that treasuries should be improving from a fundamental standpoint. ADP jobs grossly missed expectations and we’re being told there is no stimulus deal, once again. The sentiment is clearly shifting to investors are saying no to sub 1% bond market returns when the perception is that stocks only go up. My guess is this has always been the sentiment but the Fed had been stepping in to backstop the yield. The Fed will of course step in again to buy treasuries in enough volume to control the yield, we just don’t know when. It is a double edged sword as the Fed needs to buy bonds to control the yield but by buying bonds and keeping yields low, stocks rise. Tough balance for sure and the Fed has done a great job.


FHA released their 2021 max loan amounts this a.m. These are county specific so there is not one set amount for most of the country. The new maximum loan amounts are effective for case numbers issued o1/1/21 or later. Las Vegas has a new loan limit for 2021 of $362,250. The best way to check on a specific county is by using this look up tool. FHA Mortgage Limits (


I thought I would share a piece from a mortgage insider, Hammer Helmer. He is typically bullish on rates and today is no different. It does offer some reasonable insight, however lacks in an understanding of the stock lever and how equity markets are pulling rates higher with them. For rates to drop, I suspect we will need to see a drop in equities.


Don’t worry my friends, yesterday was simply a bump in the road to the better rates and pricing that I’ve said is coming in December.  Although I didn’t think we would see worsening from 10am levels, we did. Still, it was a backslide of about -30bps after two days of gains that netted us +50bps… so let’s keep some perspective, shall we? Even after yesterday, mortgage bonds are still at better levels than right before Thanksgiving. The 10-yr yield, not so much.


But why did we hit that bump? I’m glad you asked…

The first reason we saw a jump yesterday was due to some technicals. It was the first day of the month, and investors were going to be adjusting positions anyway. Mortgage bonds were hitting new highs (as I said they would, and I say they will go even higher soon) and were due for some pullback. I won’t spend a lot of time talking about this, but it was a small factor.


The second reason we saw a jump yesterday was computerized trading. When bonds hit a certain level, it triggered a much bigger sell off.  Again, an oversimplification that we won’t spend a lot of time talking about, but a factor.


The third reason we saw a jump yesterday was the risk-on rally as markets get giddy on positive vaccine news, helping investors look past the jump in infections and the current concerns over lockdowns and curfews. Stocks continued to hit new highs and bonds suffered as investors raised their bets on a swift economic recovery.


The fourth reason we saw a jump yesterday was the renewed optimism that at least a small stimulus package will get done before the end of the year. The optimism here gained ground fast and hard, and was one of the bigger factors in why we saw bonds lose ground. A stimulus package comes with a staggering amount of debt, which will come in the form of Treasuries. That drove 10-yr Treasury yields to jump from 0.84% to 0.93% in one day.


So are we getting better rates and pricing for Christmas or not?

My answer here remains YES.

Right now investors are wearing their rose colored glasses, optimistic that Covid will soon be behind us and the economy can get back to seriously recovering. They are downright weak in the knees about all the stimulus money that is bound to come, and stocks are building off of a stellar November to hit record highs (again).


But that’s all going to fall apart. (my opinion)

Politicians are not going to come to terms, unless the Democrats give up altogether to appease Senate Republican demands and choose to fight again once President Elect Joe Biden takes office. I honestly don’t believe that House Speaker Nancy Pelosi will put aside her ego for that to happen, nor that Senate Majority Leader Mitch McConnell will agree to a bigger deal (and let us end the political talk there). I think that we’ve seen this play out before, and as hopes of a deal fall apart again it will help bonds recover and leave room for pricing improvements.


Also, I think as we get some negative economic data over the next couple of weeks, starting with this week’s jobs data on Friday, investors will come back to earth. I don’t think consumers are spending right now anywhere near the same levels of the past, despite online retail sales being at record highs. It’s still nowhere near the normal spend we see this time of year. People are jobless, money is tight, people are getting depressed and so is the economy. That’s going to become more obvious, and when the reality that the vaccines aren’t going to magically solve all the woes comes to light (or at least if they do solve all the woes it is going to take months, not weeks), we’re going to see bonds rally once again.


When the current optimism wears off, we will see bonds recover, and I don’t think it is going to take long for that to happen. When it does, pricing is free to improve further once again.


Please remain safe and healthy, make today great.